Discussing Money With Your College-Bound Teen
The first week of college is an exciting time. Often on their own for the first time, students want to see and try everything (without so many limitations imposed by their parents). Of course, trying everything costs money, but teaching you teens how to handle money before they’re off to college means they won’t have to learn the hard way when they get there.
Most high schools don’t prioritize teaching kids about savings and credit. So, it is up to parents to teach this important subject and reinforce good money habits by instilling sound financial skills before they graduate. Here are four ideas that can help parents prepare their kids for financial responsibility in college, and for building financial independence in adulthood.
1. Earning and Spending
One of the best ways for young people to begin to understand how money works is for them to actually earn and use it. Students with jobs experience receiving a paycheck, understanding withholding, and basic banking.
Working for what they want to have also teaches important lessons about saving for financial goals. They may want to take a new laptop to school instead of the still-functioning laptop they used in high school. Challenging your future college student to earn the money themselves lets them experience saving for a goal. A budgeting app (like Mint) can give them tools to manage their own saving goals, which will help them do the same thing later when you’re not looking over their shoulder. Have them calculate how much they will need to earn by the end of summer to pay for the laptop—they may even find, once they have to save up for it themselves, that it’s not really as important as they thought.
2. Good and Bad Credit
Lenders are still eager to hand credit cards to 18-year old kids. You can make a case for it: your child could need a plane ticket when you’re hundreds of miles away and unavailable to help. But this is a dream situation for card companies, who’d like nothing more than to create lifelong debtors out of our children, creating a tenacious habit, born of unfettered access to a credit card, that ultimately can be a nightmare for your child. Credit card companies charge high interest rates and fees to new credit users, and they stand to make a lot of money if your child is unable to pay off the bill every month.
Parents should have a conversation with kids regarding credit cards and spending before sending them off to college. Whether or not you think it is a good idea for your child to have an only-for-emergency credit card, they will eventually deal with the concept of unsecured credit from banks and the potential negative impact of mismanaged credit. Giving them some background information before it happens can help them handle it better.
3. Loaned Out
Unless your student has a fantastic scholarship or you have saved very well for their college, chances are someone is going to take out a loan for their education. Though it may be tempting, don’t apply for FAFSA and organize these loans for your child: instead, do it together. They must understand the ins and outs of education loans, grants, and other means of paying for college that doesn’t involve cash or consumer credit. Have the discussion while you’re preparing the FAFSA; it can be a good way to broach a sometimes-difficult topic.
4. Generic Goods
When discussing paying for college, it’s natural to talk about the more expensive items—computers, cars, tuition, books. However, a college student has small daily expenses too: food, clothing, household items that they may have forgotten to pack. Include budgetary basics in the pre-college talk. They may need tips on how to stretch dollars in a grocery store or how to shop around for items they need. Have them take trips to the store with you so you can lead by example. Explain that the store-brand cereal is often just as good, and can cost half as much, as the brand-name cereal they’re used to at home (Britta’s favorite granola is store brand). Maybe even experiment by handing your grocery list to your student and letting them see how much they can save with a little comparison shopping.
It’s never too early to begin discussing financial skills with your child, and it’s better if you don’t need to wait until the day they leave (or even when they start their college applications). Helping your child build strong financial literacy early eases their path to success through their college life, and into adulthood.